Activity in the services sector contracted during January as a result of the foods in Queensland along with retailers struggling with low consumer confidence, according to the latest Australian Industry Group-Commonwealth Bank performance of services index.
The index itself, which is a survey of 200 firms, dropped to 45.5 points – well below the 50-point level separating expansion from contraction. It is the lowest point since mid-2009.
The index of new orders dropped by 5.6 points to 39.7, while the index for sales dropped by 1.5 points to 45.4.
“The Sector faces headwinds from the high Australian dollar, rising interest rates over 2010, and the onset of the catastrophic Queensland and Victorian floods in January which further torpedoed business and consumer confidence and activity,” CBA senior economist John Peters said in a statement.
“But looking ahead on the positive side of the ledger, a likely strengthening domestic economy in 2011, further solid jobs growth and falling unemployment, and rising income levels and wages, are likely to cheer up consumers,” he added.
According to the latest figures from the Australian Bureau of Statistics, the seasonally adjusted estimate for dwellings approved rose by 8.7% in December after a 3.9% drop in November.
The estimate for private sector home approvals remained flat, while “other” dwellings approved rose by 21.3%.
The estimate for the value of all building approvals rose by 8.3%, with the value of total residential approvals up 5.7% and non-residential approvals up by 13.1%.
Shares in Virgin Blue have gained 1.25% to 40.5c after the company announced that a scheduling and joint pricing alliance with Etihad had been granted regulatory approval.
The Australian Competition and Consumer Commission said in a statement that the alliance would not result in anti-competitive effects because the two airlines do not compete.
“The alliance is likely to promote competition and result in new international services, in particular between Australia and Abu Dhabi,” ACCC chairman Graeme Samuel said in a statement.
Local shares have opened slightly higher this morning after a solid night on Wall Street, but investors are still awaiting the impact of cyclone Yasi in Queensland.
The benchmark S&P/ASX200 index was up by eight points or 0.19% to 4805.8 at 12.20 AEST, while the Australian dollar has remained above parity at $US0.100c.
Commonwealth Bank shares dropped 0.5% to $52.50, while NAB shares rose 0.6% to $24.78. Westpac shares lost 0.5% to $22.99 as ANZ rose 0.5% to $23.87.
Tabcorp Holdings has seen its shares gain over 3% this morning after the company announced net profit was $265.5 million in the December half, up from $257.9 million in the previous corresponding period.
Chief executive Elmer Funke Kupper said in a statement the company’s three divisions are all operating well and that an improvement in consumer confidence is coming, as the impact of the floods in Queensland begins to fade.
“We are expecting to see positive underlying growth in the second half of the year,” Kupper said.
Shares on Wall Street remained flat overnight with strong results from Disney and Caterpillar being held back by uncertainty over Egypt’s future, but investors believe the positive result is evidence of an economic recovery.
The Dow Jones Industrial Average gained 1.81 points or 0.02% to 12,041.97.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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